Darwinian Economics

Cornell Prof. Robert Frank blogs in the NYTimes about the economic lessons in Darwin's theories of evolution. Frank contends that Darwin provides a better framework for understanding competition than Adam Smith's Invisible Hand concept:

Smith’s basic idea was that business owners seeking to lure customers away from rivals have powerful incentives to introduce improved product designs and cost-saving innovations. These moves bolster innovators’ profits in the short term. But rivals respond by adopting the same innovations, and the resulting competition gradually drives down prices and profits. In the end, Smith argued, consumers reap all the gains.

The central theme of Darwin’s narrative was that competition favors traits and behavior according to how they affect the success of individuals, not species or other groups. As in Smith’s account, traits that enhance individual fitness sometimes promote group interests. For example, a mutation for keener eyesight in hawks benefits not only any individual hawk that bears it, but also makes hawks more likely to prosper as a species.

In other cases, however, traits that help individuals are harmful to larger groups. For instance, a mutation for larger antlers served the reproductive interests of an individual male elk, because it helped him prevail in battles with other males for access to mates. But as this mutation spread, it started an arms race that made life more hazardous for male elk over all. The antlers of male elk can now span five feet or more. And despite their utility in battle, they often become a fatal handicap when predators pursue males into dense woods.

(Image from NYTimes.com)

Chimerican Relations

David Brooks reports on a debate over the relationship between China and America. Niall Ferguson takes a hawkish view about the ambitions of a power-hungry China. James Fallows argues that China's interests are oriented towards internal stability and integration with the global economy -- not world domination.

I agree strongly with Fallows, and the psychology argument that Brooks highlights is the key. China doesn't want to rule the world. It does want respect and security... and it wants to be very, very successful. But given those things, Chinese psychology doesn't call for it to dominate other nations the way German or Japanese psychology did in the 20th century.

Afraid of the Dark

Cool article in another NYTimes.com blog -- this time by Harvard psychology professor Daniel Gilbert -- discussing the psychological connection between uncertainty and unhappiness. He says the hardest part of the current economic recession is not knowing what's going to happen. Counterintuitively, knowing things will be bad makes us happier than knowing there is a possibility they will be good. In his words:

Why would we prefer to know the worst than to suspect it? Because when we get bad news we weep for a while, and then get busy making the best of it. We change our behavior, we change our attitudes. We raise our consciousness and lower our standards. We find our bootstraps and tug. But we can’t come to terms with circumstances whose terms we don’t yet know. An uncertain future leaves us stranded in an unhappy present with nothing to do but wait.

This is closely related to something I heard (and believe), about the relationship between psychological stress and control over a situation. Things can be bad, but as long as feel we have control over the situation, we aren't too stressed. Conversely, it's when we feel things are out of our control that we experience stress. A useful application of this principal in my own life is to look at any situation, and try to understand what things you can control and what things you can't... then accept the things you can't control and only worry about the ones you can.

(image by Shoboshobo)

Fascinating: The Underlying Math of Cities

In a post on Olivia Judson's blog for the NYTimes, Leon Kreitzman discusses the hidden patterns mathematics has identified in the efficiency of cities.

He talks about Zipf's Law -- that city size in a nation is inversely proportional to rank (i.e. the biggest city is 2X as large as the 2nd-biggest, and 3X as large as the third biggest) -- and the way cities get more efficient as they get bigger. A topic also covered here, and a trait that is shared not just by cities, but also by mammals.

The similarities between cities and mammals are particularly interesting because they highlight the fact that cities and animals are in some ways both organisms. Mammals are collections of cells and organs organized through evolution to perpetuate life (ignoring for the moment, more lofty potential explanations). Cities are collections of individuals and infrastructure organized through society to enhance productivity and growth. Makes one wonder what the relevant organs correspond to in a city. I've always heard people say City Hall is full of assholes.

(Image above by Lee Jang Sub)

The Virtues of Ex-Patriotism

Article in The Economist: living abroad makes you more creative.

All tied up

Very detailed article in the NYTimes yesterday about Tim Geithner and the economic relationship between the U.S. and China. It's a bit on the long side, but worth a read if you're interested in the issue.

Some of the key points that jumped out at me:

• Obama officials believe China's recent job losses are more than the 20 million officially estimated. Not terribly surprising, but it suggests the Chinese economy may be weaker than generally recognized.
• Good insight about China's aggressive stance towards the U.S. being "more to soothe a domestic audience" than a sign of actual policy. In other words, the Chinese government is are more worried about social unrest than anything else, and if things get really bad for them domestically, they are prepared to blame their economic problems on the U.S.
  

The Story of Our Lives

An amazing story in The Atlantic about the Harvard Study of Adult Development (aka the Grant Study). In 1937, researchers identified 268 of the healthiest and most well-adjusted sophomore men at Harvard University (including the future President Kennedy), and they've followed their lives over the last 72 years.

The results breathtakingly illustrate just how complex our lives are. Highly recommend you take the time to read it. It's a pretty unique vantage point onto the human condition.

Changing the Rules of the Game

Good article from Gladwell in the New Yorker about how disadvantaged competitors win by changing the way the game is played. Takes examples from basketball (the full court press), military history and the biblical story of David & Goliath. The most interesting point isn't that obvious one, i.e. that weaker competitors can still win if they find new ways to compete, it's just how often they win when they adopt this strategy.

Looking at the military history of battles between seriously outmatched opponents, political scientist Ivan Arreguin-Toft found that when the underdogs adopted novel strategies, they increased their likelihood fo winning from 28.5 to 63.6 percent. Not bad considering he defined underdogs as groups whose opponents were at least ten times stronger in terms of armed might and population.

One for the City-Dwellers

Interesting fact: cities are the most environmentally-friendly form of living. This post from the NYTimes blog discusses recent statistics showing that urban areas have lower per capita carbon emissions than either suburban or rural areas.

It's counterintuitive when you think about all the pollution in cities, but the average city lives in a smaller home, tends to take public transportation and shares services with more of neighbors. Outside of cities, people live in larger homes (which need to be heated and cooled) and use more energy transporting themselves around.

A nice quote from Ed Gleaser at Harvard sums it up: "“If you want to take good care of the environment, stay away from it and live in cities.”

Wanted: New Models in Media

Follow-up from the Clay Shirky "Newspapers are Done..." piece posted a few days ago: the NYTimes reports today on GlobalPost, a new venture for global journalism utilizing an online "freemium" business model.

Will it work? Who knows. More important than any given venture, this is an example of the multitude of approaches people are experimenting with to separate the useful role of journalism from the increasingly obsolete business of publishing newspapers.

I've been having a lot of discussions recently about way the internet is changing the various media industries -- newspapers, music, film, etc. One thing people seem to have trouble with is understanding the difference between the value of the Content and the value of the Business Model.

In all of these industries, the content is still valuable to people, whether it's a song, a movie or a piece of reporting. In fact, it's probably more valuable than ever before, because more people are accessing it and enjoying it. The problem is that the industries built up around the content have all evolved around a particular Business Model that makes money by solving the distribution problem. And as Clay Shirky pointed out, that problem just ceased to exist.

What needs to happen is for new business models to come into existence so the content creators can make money in the new environment (perhaps this is something like GlobalPost in journalism or Live Nation in the music industry). Unfortunately, there are a lot of people and a lot of capital tied up in the old business models, and transition ing to the new ones means their jobs disappear and institutions they've built need to be taken down. That's a painful change, so the people and companies threatened by it are fighting tooth and nail to preserve the old environment through copyright litigation and other strategies.

Amazing.

Obama just released a video message to the Iranian people. Here's the story in the NYTimes, and here's a link to the video on the White House website.

Newspapers are done.

A really nice summation of the problems the press is facing by Clay Shirky. Just like the printing press in its day up-ended the existing power structures and economics of information, the internet today is rendering the business model of print publishing obsolete.

In his words:

"It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves — the incredible difficulty, complexity, and expense of making something available to the public — has stopped being a problem."

Must Watch

Feel bad that I had to wikipedia "Louis CK." Clearly I've been out of the country too long. But damn funny and a critical reminder of how the world really is around us.

New social boundaries

Another TED presentation, this one from Seth Godin, talking about how new social groups and movements spring up from commonly held values and leaders who can tap into them. The idea of "tribes" is particularly interesting as traditional social demarcations fade away -- nationality, religion, ethnicity... not as important. In a global, connected world we get to find our own tribes. Lots of freedom, and a lot of upheaval along with it.

In case you were wondering, this is the future of computers

Twenty years from now, artificial intelligence will consist of machines constructed to imitate the flexibility and learning capabilities of the human mind. This synopsis of a TED (Technology Entertainment Design) conference presentation last week describes how researchers from IBM and elsewhere are beginning to engineer computers based on the architecture of the brain.

Why India is in good shape for the future

Dan Pepper passed on this article in Newsweek highlighting the underlying strength of India's economy.

"Be nice to countries that lend you money"

Great perspective on America from the banker who runs the $200 billion China Investment Corporation in The Atlantic. He loves us, but thinks our perspectives on the world are totally wacked. In the interview, he gives a pretty unvarnished perspective on the financial crisis (a fundamental change), derivatives ("bullshit... crap... they serve to cheat people"), American pragmatism (the best part of our culture) and -- most importantly -- China's attitude towards it's U.S. dollar reserves ("We’d love to support you guys—if it’s sustainable").

But the comment that struck me the most was what he had to say about Wall Street compensation and salary disparities in China and the U.S..

"When I graduated from Duke [in 1986], as a first-year lawyer, I got $60,000. I thought it was astronomical! I was making somewhere a bit more than $80,000 when I came back to China in 1988. And that first month’s salary I got in China, on a little slip of paper, was 59 yuan [$8.63]. A few dollars! With a few yuan deducted for my rent and my water bill. I laughed when I saw it: 59 yuan! The thing is, we are working as hard as, if not harder than, those people. And we’re not stupid. Today those people fresh out of law school would get $130,000, or $150,000. It doesn’t sound right."

As someone who's worked in China and India, that hits home. People in these countries ARE pretty smart and they're working damn hard. But because of the historical differences in economic development between our country and theirs, they get paid a tiny fraction for doing the same work.

He's right: it doesn't sound right. And it probably won't last.